UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

T	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the Quarterly Period Ended June 30, 2010
	For the Quarterly Period Ended September 30, 2010
or
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____________________ to _____________________________

COMMISSION FILE NUMBER: 0-17893

TELTRONICS, INC.
(Exact name of registrant as specified in its charter)

Delaware	59-2937938
(State or other jurisdiction of Incorporation or organization)	(IRS Employer Identification Number)

2511 Corporate Way, Palmetto, Florida 34221
(Address of principal executive offices including zip code)

(941) 753-5000
Registrant's telephone number, including area code

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No £

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	£	Accelerated filer	£
Non-accelerated filer	£	Smaller reporting company	T
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T

As of ~~August~~November 1612, 2010, there were 8,730,539 shares of the Registrant's Common Stock, par value $.001, outstanding.

Exhibit index appears on page 1314.

TABLE OF CONTENTS

		PAGE
PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets at June 30, 2010 (Unaudited) and December 31, 2009	1
	Condensed Consolidated Balance Sheets at September 30, 2010 (Unaudited) and December 31, 2009	1
	Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six months ended June 30, 2010 and 2009	2
	Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine months ended September 30, 2010 and 2009	2
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six months ended June 30, 2010 and 2009	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine months ended September 30, 2010 and 2009	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	8
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	11
ITEM 4.	CONTROLS AND PROCEDURES	11
PART II	OTHER INFORMATION
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	12
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	12
SIGNATURES		13
EXHIBIT INDEX		14

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TELTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

In thousands, except shares and per share amounts

ASSETS
	June 30,			December 31,
	September 30,			December 31,
	2010			2009
	(Unaudited)
Current assets:
Cash and cash equivalents	$	~~629~~68		$	339
Accounts receivable, net		34,~~193~~432			4,856
Inventories, net		4,~~659~~150			4,823
Prepaid expenses and other current assets		~~510~~449			406
Total current assets		89,~~991~~099			10,424
Property and equipment, net		~~807~~748			751
Other assets		~~344~~407			368
Total assets	$	10,~~142~~254		$	11,543
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
Current liabilities:
Line of credit	$	23,~~651~~706		$	3,124
Current portion of long-term debt and capital lease obligations		1,~~620~~288			1,220
Accounts payable		4,~~607~~661			3,316
Accrued expenses and other current liabilities		4,~~930~~448			3,200
Deferred revenue		~~618~~598			526
Total current liabilities		14,~~426~~701			11,386
Long-term liabilities:
Deferred dividends		4,~~200~~400			3,800
Long-term debt and capital lease obligations, net of current portion		4336			1,029
Total long-term liabilities		4,~~243~~436			4,829
Commitments and contingencies
Shareholders' deficiency:
Capital stock		9			9
Additional paid-in capital		24,~~742~~745			24,735
Other comprehensive loss		(171	)		(169	)
Accumulated deficit and other comprehensive loss		(33,637	)		(29,416	)
Accumulated deficit		(33,107	)		(29,247	)
Total shareholders' deficiency		(8,883	)		(4,672	)
Total shareholders' deficiency		(8,527	)		(4,672	)
Total liabilities and shareholders' deficiency	$	10,254		$	11,543
Total liabilities and shareholders' deficiency	$	10,142		$	11,543

The accompanying notes are an integral part of these condensed consolidated financial statements.

TELTRONICS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except shares and per share amounts

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Net sales
Product sales and installation	$	34,~~762~~591		$	911,~~032~~513		$	712,~~463~~054		$	1627,~~090~~603
Maintenance and service		23,~~411~~371			2,~~710~~692			48,~~933~~304			57,~~301~~994
		6,173			11,742			12,396			21,391
		7,962			14,205			20,358			35,597
Cost of goods sold		45,~~386~~084			68,~~673~~367			712,~~740~~824			1221,~~842~~209
Gross profit		12,~~787~~878			5,~~069~~838			47,~~656~~534			814,~~549~~388
Operating expenses:
General and administrative		1,~~314~~469			1,~~114~~270			24,~~831~~300			23,~~292~~562
Sales and marketing		~~579~~498			~~744~~839			1,~~260~~758			12,~~345~~184
Research and development		~~703~~672			~~609~~752			12,~~444~~116			12,~~344~~096
Depreciation and amortization		57			5338			~~115~~172			~~106~~144
		2,653			2,520			5,650			5,087
		2,696			2,899			8,346			7,986
Income (loss) from operations		~~(866~~182	)		2,~~549~~939			(~~994~~812	)		36,~~462~~402
Other income (expense):
Interest		(~~275~~310	)		(~~371~~339	)		(~~527~~837	)		(~~779~~1,118	)
Other		~~(1,820~~41	)		(314	)		(1,~~801~~760	)		2713
		(2,095	)		(374	)		(2,328	)		(752	)
		(269	)		(353	)		(2,597	)		(1,105	)
Income (loss) before income taxes		(~~2,961~~87	)		2,~~175~~586			(3,~~322~~409	)		25,~~710~~297
Income taxes		65			65			1217			1217
Net income (loss)		(~~2,967~~92	)		2,~~169~~581			(3,~~334~~426	)		25,~~698~~280
Dividends on Preferred Series B and C Convertible stock		263			263			~~526~~789			~~526~~791
Net income (loss) available to common shareholders	$	(~~3,230~~355	)	$	12,~~906~~318		$	(34,~~860~~215	)	$	24,~~172~~489
Net income (loss) per common share:
Basic	$	(0.3704	)	$	0.2227		$	(0.4448	)	$	0.2552
Diluted	$	(0.3704	)	$	0.2023		$	(0.4448	)	$	0.2548
Weighted average common shares outstanding:
Basic		8,~~720~~727,~~539~~428			8,~~647~~648,~~539~~361			8,~~713~~718,~~931~~429			8,647,~~539~~810
Diluted		8,~~720~~727,~~539~~428			1011,~~925~~230,~~491~~761			8,~~713~~718,~~931~~429			911,~~368~~044,~~968~~528

The accompanying notes are an integral part of these condensed consolidated financial statements.

TELTRONICS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands, except shares and per share amounts

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2010			2009
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES	$	~~1,657~~452		$	~~161~~1,334
INVESTING ACTIVITIES – ACQUISITION OF PROPERTY AND EQUIPMENT		(142	)		(4	)
INVESTING ACTIVITIES – NET		(147	)		(180	)
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit		(473	)		1,024
Net borrowings on line of credit		582			805
Net principal repayments on loan, notes and capital leases		(628	)		(601	)
Net principal repayments on current and long-term debt and capital lease obligations		(967	)		(887	)
Repayment of loan from related party		---			(203	)
Net proceeds from exercised options		4			---
Dividends paid on Preferred Series B Convertible stock		(~~126~~189	)		(~~126~~189	)
Net cash flows provided by (used in) financing activities		(1,223	)		297
Net cash flows used in financing activities		(570	)		(474	)
Effect of exchange rate changes on cash and cash equivalents		(26	)		~~138~~81
Net increase in cash and cash equivalents for the period		290			592
Net (decrease) increase in cash and cash equivalents for the period		(271	)		761
Cash and cash equivalents - Beginning of Period		339			548
Cash and cash equivalents – End of Period	$	~~629~~68		$	1,~~140~~309

The accompanying notes are an integral part of these condensed consolidated financial statements.

TELTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except shares and per share amounts

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the ~~six~~nine month period ended ~~June~~September 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

The condensed consolidated balance sheet at December 31, 2009 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2009.

The Company has engaged an advisory firm toand ~~look~~has ~~for~~continued to seek debt financing and ~~is in discussions with another firm to~~ raise equity. This would strengthen the Company’s working capital and give the Company funds to market its new and current product lines to increase revenues. Failure to obtain sufficient debt or equity financing and, ultimately, to achieve profitable operations and positive cash flows from operations during 2010, may affect the Company’s ability to achieve its business objectives. There are no assurances that the Company will be successful in obtaining alternate financing or raising additional capital. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

NOTE 2 - COMPREHENSIVE INCOME (LOSS)

Total comprehensive income (loss) is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Net income (loss)	$	(~~2,967~~92	)	$	2,~~169~~581		$	(3,~~334~~426	)	$	25,~~698~~280
Foreign currency translation		8(4	)		~~150~~(55	)		(26	)		~~136~~81
Total comprehensive income (loss)	$	(~~2,959~~96	)	$	2,~~319~~526		$	(3,~~336~~432	)	$	25,~~834~~361

NOTE 3 - NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
Net income (loss) per share	2010			2009			2010			2009
Basic
Net income (loss)	$	(~~2,967~~92	)	$	2,~~169~~581		$	(3,~~334~~426	)	$	25,~~698~~280
Preferred dividends		(263	)		(263	)		(~~526~~789	)		(~~526~~791	)
	$	(~~3,230~~355	)	$	12,~~906~~318		$	(34,~~860~~215	)	$	24,~~172~~489
Weighted average common shares Outstanding		8,~~720~~727,~~539~~428			8,~~647~~648,~~539~~361			8,~~713~~718,~~931~~429			8,647,~~539~~810
Net income (loss) per common share	$	(0.3704	)	$	0.2227		$	(0.4448	)	$	0.2552
Diluted
Net income (loss)	$	(~~2,967~~92	)	$	2,~~169~~581		$	(3,~~334~~426	)	$	25,~~698~~280
Preferred dividends		(263	)		---			(~~526~~789	)		~~(400~~---	)
	$	(~~3,230~~355	)	$	2,~~169~~581		$	(34,~~860~~215	)	$	25,~~298~~280
Weighted average common shares Outstanding		8,~~720~~727,~~539~~428			1011,~~925~~230,~~491~~761			8,~~713~~718,~~931~~429			911,~~368~~044,~~968~~528
Net income (loss) per common share	$	(0.3704	)	$	0.2023		$	(0.4448	)	$	0.2548

Dilutive common shares primarily consist of employee stock options, Preferred Series B Convertible stock and Preferred Series C Convertible stock. For the three months ended ~~June~~September 30, 2010 options to purchase 1,~~235~~159,000 shares of common stock and Preferred Series B and C Convertible stock were not included in the computation of diluted net loss because the effect would be anti-dilutive. For the three months ended ~~June~~September 30, 2009 options to purchase 1893,~~219,000~~574 shares of common stock were not included in the computation of diluted net income per share because the effect would be anti-dilutive. For the ~~six~~nine months ending ~~June~~September 30, 2010 options to purchase 1,~~235~~159,000 shares of common stock and Preferred Series B and C Convertible stock were not included in the computation of diluted net loss because the effect would be anti-dilutive. For the ~~six~~nine months ended ~~June~~September 30, 2009 options to purchase 1,~~321~~079,~~000~~256 shares of common stock ~~and Preferred Series C Convertible stock~~ were not included in the computation of diluted net income per share because the effect would be anti-dilutive.

NOTE 4 - INVENTORIES

The major classes of inventories are as follows:

	June 30, 2010		December 31, 2009
	September 30, 2010		December 31, 2009
	(Unaudited)
Raw materials	$	2,~~375~~033	$	2,566
Work-in-process		~~323~~455		1,099
Finished goods		1,~~961~~662		1,158
	$	4,~~659~~150	$	4,823

NOTE 5 – LINE OF CREDIT AND LONG-TERM DEBT

The Company’s credit facility, as amended on December 31, 2009, is subject to compliance with various financial covenants and borrowing base criteria. The Company was ~~not~~ in compliance with ~~some of~~ these financial covenants as of ~~June~~September 30, 2010. AsDue ~~a result of this non-compliance, the Company’s credit facility was subsequently amended~~ to ~~cure~~an ~~this non-compliance. In this~~ amendment ~~the~~on ~~Lender~~May ~~has~~14, ~~reset~~2010, ~~various financial covenants through~~ the ~~remainder~~lender ~~of 2010 and~~ increased the ~~amortization of the~~ principal payment on the term note from $97 to $117 monthly effective January 1, 2011. As a result the Company has recognized ~~this~~the long -term debt as current ~~as of June 30, 2010~~. The total loan balance of the term debt as of ~~June~~September 30, 2010 was $1,~~549~~233.

The credit facility consists of a $6,000 revolving line of credit and a five year term-loan with a maximum principal amount of $5,842. Advances under the Revolving credit facility are subject to availability based upon percentages of eligible receivables and eligible inventory. Borrowings under the facility bear interest at an annual rate of Prime Rate, plus 3.75%, with a minimum rate of 9.75%, and are subject to mandatory prepayments in certain situations. The obligations of the agreement are secured by a first lien and security interest in all of the Company’s assets. The availability under this facility as of ~~June~~September 30, 2010 was $~~192~~193.

NOTE 6 – COMMITMENTS AND OTHER CONTINGENCIES

The Company has ~~been~~settled ~~notified of~~ a claim from four former employees. ~~Subject~~The tosettlement ~~execution~~agreement ofwas aexecuted ~~mutually~~in ~~acceptable~~September ~~settlement~~2010 ~~agreement~~to ~~the~~pay ~~claim~~a ~~has~~total ~~been~~of ~~tentatively resolved for~~ $775, payable ~~with~~in a down payment of $175 at the time of execution and the remaining is payable in equal installments of $75 each month until paid in full. The adjustment has been recorded in accrued expenses and other liabilities on the balance sheet and other expenses on the income statement totaling $784 which includes the Company’s obligation to pay payroll taxes for a portion that relates to wages. As of September 30, 2010, the Company has paid $177 related to this settlement.

The Company reviewed wages previously paid to certain employees that worked on specified contracts held by the Company and agreed to pay these employees additional wages for the years reviewed. Payment will be made in bi-weekly installments over a three year period commencing July 2010. The adjustment has been recorded in accrued expenses and other liabilities totaling $1,168 on the balance sheet and $1,043 in other expenses on the statement of operations and $125 is recorded in cost of sales for current 2010 wages. As of September 30, 2010, the Company has paid $156 in additional wages.

The Company entered into a commercial lease agreement effective June 1, 2009 to lease a 51,520 square foot facility in Palmetto, Florida. The term of the lease expires on December 31, 2025. The Company also entered into a formal sub-lease agreement with an affiliated entity as discussed in Note 7.

NOTE 7 – OTHER RELATED PARTY TRANSACTIONS

The Company entered into a sub-lease agreement with an affiliated entity, controlled by one of the directors of the Company. Under the agreement the affiliate has agreed to pay the Palmetto lease obligations from June 1, 2009 through December 31, 2010. As of ~~June~~September 30, 2010 the affiliated entity paid $529 on behalf of the Company, of which a portion is a credit against future sublease rental payments. The Company recognized $~~412~~517 of rent expense as of ~~June~~September 30, 2010 for its use of the office space and ~~furniture rental and~~ will continue to make monthly office rental payments until August 2011 and furniture rent payments through December 2012. The affiliated entity occupies approximately 8,000 square feet of the 51,200 square feet Palmetto facility as described in Note 6. Costs are allocated between the Company and the affiliated entity based on percentage of the building occupied.

The Series C Preferred Stock of the Company, owned by an entity controlled by three Directors of the Company, provides for a $20 per share annual dividend, payable quarterly. The holder of the Series C Preferred Stock has the right, but not the obligation, at its option, to convert the 40,000 shares of Preferred Stock to 1,454,545 shares of the Common Stock of the Company, subject to adjustment. The Company has the right, but not the obligation, to redeem all or a portion of the then outstanding Series C Preferred Stock at any time for 100% of the face value which is $4,000 plus accrued and unpaid dividends. Unpaid dividends accrue interest at 10% per annum. As of ~~June~~September 30, 2010, accrued but unpaid dividends aggregated $4,400 and interest on the unpaid dividends was $1,377. The cost to the

~~unpaid dividends aggregated $4,200 and interest on the unpaid dividends was $1,261. The cost to the~~ Company to redeem the Series C Preferred Stock would be $9,~~461~~777. The holder of the Series C Preferred Stock has agreed to defer payment of accrued dividends until April 2012. Discussions have been held with the holder of the Series C Preferred Stock with respect to continued future deferrals of payment of dividends and interest on unpaid dividends. The Company has not and does not have the funds and has not been able to obtain the funds required under the Certificate of Designations Establishing the Series C Preferred Stock to be able to redeem the Series C Preferred Stock which would require the Company to pay the holder all accrued and unpaid dividends and interest on the Series C Preferred Stock in addition to the redemption price provided for in the Certificate of Designations. The Company has proposed to the holder that it consider entering into a Redemption Agreement with the Company under which the Series C Preferred Stock would be redeemed by the Company by: (i) a Company cash payment of the accrued and unpaid dividends at a substantially discounted price with the balance of dividends being forgiven; (ii) issuance of a mutually acceptable number of restricted shares of the Common Stock of the Company; and (iii) the holder waiving all accrued and unpaid interest on the unpaid dividends. The possible redemption transaction would require approval by the Company’s principal lender; financing to provide cash to pay the discounted price for the accrued and unpaid dividends; and any other required approvals. The holder and the Company are seeking the advice of tax and other professionals before attempting to negotiate the amount of cash and number of restricted shares of the Common Stock that might be issued to redeem the Series C Preferred Stock ~~which negotiations could be completed prior to the end of August, 2010~~.

Although the possible transaction described above could result in execution of a formal agreement, the Company believes that a redemption of the Series C Preferred Stock with a combination of borrowed funds and issuance of the Company’s restricted shares of Common Stock is the only alternative for payment of accrued dividends and interest and to avoid further obligations for payment of dividends and interest on any unpaid dividends. It is unlikely that the Company’s current financial condition would allow the Company to fully pay all accrued obligations and the stated redemption price under the Certificate of Designations. Although preliminary discussions concerning a possible redemption transaction have been constructive and are on going, there is no assurance that the preliminary discussions will result in a formal agreement or that if a formal agreement is executed, the proposed transaction will occur.

The Company has engaged an advisory firm to continue to look for debt financing and iscontinues inits discussions with another firm to raise equity. However, due in part to the current market neither firm has been successful to date. We continue to look for alternative funding. There can be no assurances that either of these firms will be successful in raising these funds.

NOTE 8 – SUBSEQUENT EVENTS

On October 31, 2010 the Company was not in compliance with its EBITDA ratio covenant contained in the Credit Agreement which was subsequently amended on November 15, 2010 by the Lender to cure any noncompliance. In this amendment, the Lender has also agreed to defer the Company’s term note payment for four months to allow the Company additional cash flow during the Company’s seasonally slow periods. In addition, the Lender has agreed to make a limited overadvance to the Company totaling $500 in excess of its Borrowing Base as defined in the agreement beginning on November 15, 2010 and ending on January 31, 2011. The outstanding balance of any limited overadvance must be repaid in full by the end of January 31, 2011.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except shares and per share amounts)

RESULTS OF OPERATIONS (In thousands, except shares and per share amounts)

FORWARD-LOOKING STATEMENTS

References in this report to the “Company,” “Teltronics,” “we” or “us” mean Teltronics, Inc. together with its subsidiaries, except where the context otherwise requires. A number of statements contained in this Quarterly Report on Form 10-Q are forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” or words of similar import. Similarly, statements that describe our future plans, objectives, strategies or goals are also forward-looking statements. These forward-looking statements involve a number of risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited to, the timely development and market acceptance of products and technologies, competitive market conditions, successful integration of acquisitions, the ability to secure additional sources of financing, the ability to reduce operating expenses, and other factors described in the Company’s filings with the Securities and Exchange Commission. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

GENERAL OVERVIEW

The ~~second~~third quarter results ~~were~~are ~~significantly~~again ~~down from the same period of 2009~~disappointing. ~~This~~Net ~~was~~sales ~~due~~for inthe ~~large~~three ~~part~~months toended awere ~~reduction~~down inby ~~orders~~just ~~from~~over ~~one~~$6,200 ~~of our largest customers. The Company is one of four vendors to this customer. Last year the Company received a higher percentage~~ in comparison to the ~~other~~same ~~vendors~~period oflast ~~the orders for our 20-20 switching platform than we did this~~ year. These were installed during the second and third quarters of 2009. Although there is a significant reduction in orders this year, scheduled deliveries of this year’s orders are expected to take place during the third quarter. This customer continues to purchase from the Company and the Company has long term maintenance and support contracts with this customer.

ToThis awas ~~lesser~~predominantly ~~extent~~due ~~orders~~to sales of our ~~Alarms~~20-20™ ~~Management~~switching ~~product~~platform which were ~~adversely~~down ~~affected~~ by just under $5,000 in comparison to the ~~filing~~same ofperiod ~~bankruptcy~~for oflast ~~another~~year, due to reduced orders from one of our largest customers. ~~This~~The ~~customer~~other ~~was~~main ~~acquired~~down byturn ~~one~~was ofour ~~its~~Alarms ~~competitors~~Management ~~and~~(“ISM”) ~~the~~business ~~Company~~which is ~~modifying~~still ~~its~~being ~~products~~affected toby ~~operate~~the ~~with~~bankruptcy ~~their~~of ~~product~~one ~~offering. There~~of ~~can~~our bemajor nosuppliers ~~assurances~~to ~~that~~our ~~even~~customers. Our ifmain ~~the~~distribution ~~Company~~channels ~~succeeds~~for inthis ~~adapting~~product ~~its~~have ~~product~~not ~~that~~embraced the new ~~customer~~offering ~~will~~from ~~purchase~~the ~~units~~company inthat purchased the ~~same~~bankrupted ~~quantities~~one asand ~~previously~~therefore ~~purchased~~have reduced need for our products.

~~The~~Although ~~Company~~our ~~recognized~~net ~~that~~loss ~~it must diversify on being reliant on a few large customers. To this end we embarked on developing new products that could be sold through distribution. The first~~ of ~~these~~$92 ~~products, a small IP switch~~ for upthe tothree ~~100~~months ~~ports,~~ended ~~will~~was besignificantly ~~released~~down ~~to a limited number of dealers~~ in ~~August~~comparison ~~2010. If~~to ~~these~~our ~~tests~~profit ~~are~~for ~~successful~~ the ~~Company~~same ~~will~~period ~~then~~last ~~release~~year, ~~the~~it ~~product~~is toan ~~general~~improvement ~~distribution. The~~quarter ~~Company~~over ~~engaged~~quarter afor ~~seasoned marketing VP to spear head~~ this ~~launch and the Company is actively seeking to employ a number of experienced distribution sales people~~year.

AsThe ~~the~~ Company ~~changes~~has ~~its~~now ~~profile~~launched itits ~~also~~new ~~decided~~“VCSe100™” toentry ~~reduce~~level ~~its~~product ~~work~~and ~~force. This~~a ~~action~~number ~~was~~of ~~taken~~distributors inhave ~~July~~signed ~~2010~~up and ispurchased ~~expected~~systems tofor ~~reduce~~testing ~~expenditures annually by $1,500~~purposes. ~~Some~~Our ofsecond ~~these~~product ~~savings~~for ~~are~~IP ~~expected~~Paging toand beIntercom, ~~used~~“Amplifi”, tois ~~engage~~on ~~new~~schedule ~~personnel~~to ~~better~~be ~~suited~~released toin the ~~new~~first ~~direction~~quarter of ~~the Company~~2011. ~~The~~However, ~~Company~~it ~~has~~is ~~accrued~~very ~~$41~~early and inthere ~~severance~~can ~~related~~be tono ~~this~~assurances ~~reduction~~that the products will gain acceptance and or sell in ~~force~~the quantities that we would like.

~~Also~~The ingeneral ~~this~~outlook ~~quarter~~for ~~the~~business ~~Company~~for ~~incurred~~the ~~one~~remainder ~~time~~of ~~accruals~~this ~~relating~~year tois ~~commitments~~still ~~the~~challenging ~~Company~~due ~~has made related~~ to athe ~~tentative~~purchase ~~settlement~~cycle of a ~~claim~~number ~~totaling~~of ~~$775~~our major customers and anthe ~~accrual~~general ~~for~~economic ~~wages~~situation. There are some indications that ~~will~~the beinternational ~~paid~~market tofor ~~certain~~our ~~employees~~products ~~over~~is improving as we have a ~~three~~number ~~year~~of ~~period~~outstanding ~~totaling~~quotations ~~$1,168~~that could translate into orders for next year.

The Company continues to look for debt and equity financing but due to the current market conditions has not been successful to date.

The Company continues to invest in R&D and will be launching another new product in 2011 that will also be sold through distribution. The Company continues to successfully sell directly to its legacy customers both domestically as well as to respond to international RFPs through its international distribution channel.

The Company has engaged an advisory firm to look for debt financing and is in discussion with another firm to raise equity. This would strengthen the Company’s working capital and give the Company funds to market its new and current product lines to increase revenues. Failure to obtain sufficient debt or equity financing and, ultimately, to achieve profitable operations and positive cash flows from operations during 2010, may affect the Company’s ability to achieve its business objectives. There are no assurances that the Company will be successful in obtaining alternate financing or raising additional capital. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

RESULTS OF OPERATIONS

Net Sales and Gross Profit Margin

Net sales decreased $56,~~569~~243 or ~~47.4~~44% for the three month period ended ~~June~~September 30, 2010 as compared to the same period in 2009. The overall decrease in net sales for the three month period ended ~~June~~September 30, 2010 was primarily the result of decreased sales in the 20-20™ market and decreases in the Intelligent Systems Management (“ISM”) market. The decrease in the 20-20 market was mainly due to the decrease of 20-20 orders received in 2010 as compared to 2009 from one of the Company’s largest customers. ~~The Company received a large install order in late 2008 that was installed in the first quarter 2009.~~ There has not been any change in the relationship with this customer. The decrease in ISM sales was primarily due to the bankruptcy of a major supplier to our customers that subsequently was purchased by the supplier’s competitor. ~~We are now in discussion with the customer that has acquired our major supplier to provide them with a solution.~~

Net sales decreased $815,~~995~~239 or 42.18% for the ~~six~~nine month period ended ~~June~~September 30, 2010 as compared to the same period in 2009. The overall decrease in net sales for the ~~six~~nine month period ended ~~June~~September 30, 2010 was, as stated above, due to the decrease of 20-20 orders received in 2010 as compared to 2009 from one of the Company’s largest customers and a decrease in ISM sales due to a bankruptcy of a major supplier ~~who~~to ~~was~~our ~~acquired by the supplier’s competitor~~customers.

Gross profit margin for the three month periods ended ~~June~~September 30, 2010 and 2009 was 2936.01% and 4341.21%, respectively. Gross profit margin for the ~~six~~nine month ~~periods~~period ended ~~June~~September 30, 2010 and 2009 was 37.60% and 40.04%, respectively. The decrease in gross profit percentage for the three month period was due to increased cost of sales for maintenance repairs that were covered under maintenance agreements. The decrease in the gross profit margin for the nine months was mainly due to anmaintenance repairs and a one time wage rate accrual totaling $125 included in cost of goods sold during the second quarter. Excluding the ~~events~~one time event of ~~this~~the wage accrual, the Company’s gross profit would have been 3137.06% for the ~~three~~nine month period ended ~~June~~September 30, 2010 ~~and 38~~.~~6% for the six month periods ended June 30, 2010.~~ The remaining of the decrease is due to larger sales ratio from lower gross profit margin products.

Operating Expenses

Operating expenses were $2,~~653~~696 for the three month period ended ~~June~~September 30, 2010 as compared to $2,~~520~~899 for the same period in 2009.

General and administrative expenses increased $~~200~~199 for the three month period ended ~~June~~September 30, 2010 as compared to the same period in 2009. The net increase for the three month period ended ~~June~~September 30, 2010 was primarily due to $148 increase in ~~compensation~~bank ~~and~~services ~~other~~charges ~~related~~due ~~benefits~~to more wires and ACH transactions, $9878 increase in rents due to the move to the new office building as the Company began paying the $30 ~~commitment~~repayment asof ~~disclosed~~the inrent ~~Note~~prepaid 7by the Company affiliated entity, $30125 increase in ~~building~~legal ~~R&M~~fees ~~used~~paid infor ~~getting~~defending ~~the~~a ~~plant~~wage ~~ready~~claim, ~~for~~$10 ~~use~~increase in ~~the~~outside ~~new~~consulting ~~facility,~~fees ~~$27~~for ~~increase~~an ininternational ~~business~~sales ~~insurance~~consultant, $2594 increase indue ~~legal~~to ~~fees~~accruals ~~related~~made tofor aseveral ~~claim~~state bysales ~~four~~and ~~former~~use ~~employees~~tax audits currently being conducted, $16 increase ~~due~~in totravel, ~~payments~~M&E, toand an$15 ~~outside~~increase ~~international~~in ~~sales~~equipment ~~consultant~~rental ~~brought~~related onto rental of office furniture in ~~late~~the ~~2009,~~new facility offset by a $6110 decrease in ~~property~~compensation ~~taxes,~~and $3other ~~decrease~~related inbenefits ~~bank service charges,~~ and $137 decrease in ~~other~~telephone ~~combined~~charges ~~expenses~~due to credits received.

Sales and marketing expenses decreased $341 for the three month period ended September 30, 2010 as compared to the same period in 2009. The net decrease for the three month period ended September 30, 2010 was primarily the result of $297 decrease in compensation and related benefits due to a reduction in force, $15 decrease in bad debts expense, $2 decrease in business insurance, $7 decrease in professional fees incurred related to marketing expenses that were brought in house, $3 decrease in printing and copying expense, $7 decrease in telephone charges due to company wide credits received, $28 decrease in travel, M&E due to less sales travel during 2010 offset by a $12 increase in legal expenses related to the UK subsidiary and a $6 increase in dues and subscriptions.

~~Sales~~Research and ~~marketing~~development expenses decreased $~~165~~80 for the three month period ended ~~June~~September 30, 2010 as compared to the same period in 2009. The net decrease for the three month period ended ~~June~~September 30, 2010 was primarily the result of $~~148~~68 decrease in compensation and related benefits, $7due ~~decrease~~to ina ~~printing~~reduction ~~and copying expense, $10 decrease~~ in ~~travel~~force, ~~M&E,~~ $515 decrease in ~~sales~~professional ~~promotion expense~~fees, $811 decrease in ~~outside~~travel ~~sales~~and ~~consultant~~M&E, $7 decrease in ~~online~~minor ~~dues~~equipment ~~and subscriptions~~purchases, $27 decrease in ~~minor~~purchased ~~equipment~~software ~~purchases,~~ offset by a $2228 increase inlicenses ~~bad~~and ~~debt reserves related receivables~~support.

~~Research~~Depreciation and ~~development~~amortization ~~expenses~~expense increased $9419 for the three month period ended ~~June~~September 30, 2010 as compared to the same period in 2009. The ~~net~~ increase for the three ~~month~~months ~~period~~ ended ~~June~~September 30, 2010 was primarily the result of ~~$19~~the increase in ~~compensation~~building ~~and~~improvements ~~related benefits, $57 increase~~ in ~~rents~~getting ~~due~~the tonew afacility ~~department~~ready ~~reclassification,~~for ~~$12~~operations ~~increase~~and inassets ~~professional~~purchased ~~fees,~~during ~~$22~~the ~~increase~~latter inpart ~~travel,~~of ~~M&E~~2009 offset by afully ~~$14~~depreciated ~~decrease~~assets induring ~~software licenses and support and $2 decrease in other combined expenses~~2010.

~~Depreciation~~Operating ~~and~~expenses ~~amortization~~were ~~expense increased~~ $48,346 for the ~~three~~nine month period ended ~~June~~September 30, 2010 as compared to $7,986 for the same period in 2009. ~~The increase for the three months ended June 30, 2010 was primarily the result of the increase in building improvements getting the new facility ready for operations.~~

~~Operating~~General and administrative expenses ~~were~~increased $~~5,650~~738 for the ~~six~~nine month period ended ~~June~~September 30, 2010 as compared to the same period in 2009. The net increase for the nine month period ended September 30, 2010 was primarily the result of $517 increase in bank service charges,~~087~~ $511 increase in rent due to the accrual for straight line rent expense related to the ~~same~~new ~~period~~office building coupled with additional rent expense paid on the new office location, $72 increase in building R&M related to getting the plant ready for operations, $24 increase in business insurance, $113 increase in legal fees to defend the claim disclosed in Note 6, $41 increase in outside consulting services related to international sales, $53 increase in office supplies due to a credit in 2009, $94 increase in sales and use tax expense for accruals made for several sales and use tax audits currently in progress, $23 increase in shipping charges, $11 increase in dues and subscriptions and $35 increase in furniture rental for the new facility offset by $119 decrease in compensation and other related benefits, $10 decrease in bad debts expense, $5 decrease in property taxes, $90 decrease in professional fees due to monthly fees paid in 2009 to an equity firm that was not retained in 2010 as well as larger payments made to a management consulting firm in 2009 than 2010, $29 decrease in telephone expenses due to a company wide credit received and a $3 decrease in travel and M&E.

~~General~~Sales and ~~administrative~~marketing expenses ~~increased~~decreased $~~539~~426 for the ~~six~~nine month period ended ~~June~~September 30, 2010 as compared to the same period in 2009. The net ~~increase~~decrease for the ~~six~~nine month period ended ~~June~~September 30, 2010 was primarily the result of $8500 ~~increase~~decrease in ~~bank~~compensation ~~service~~and ~~charges,~~other ~~$433~~related ~~increase~~benefits ~~in rent~~ due to ~~the~~Company ~~accrual~~reductions ~~for~~in ~~straight~~force, ~~line~~$38 ~~rent~~decrease ~~expense~~in ~~related~~travel toand ~~the~~M&E, ~~new~~offset ~~office~~by ~~building~~$21 ~~coupled~~increase ~~with~~in ~~additional~~bad ~~rent~~debts expense, ~~paid~~$7 onincrease ~~the~~in ~~new~~late ~~office location~~fees, $7121 increase in ~~building~~legal ~~R&M~~incurred ~~related~~from ~~to getting~~ the ~~plant~~UK ~~ready for operations~~subsidiary, $2132 increase in ~~business insurance, $31 increase in~~ outside consulting services, ~~related~~$14 toincrease ~~international~~communications ~~sales~~expense, $610 increase in ~~online~~advertising ~~communications~~expense, ~~offset by~~ $92 ~~decrease~~increase in ~~compensation~~education and ~~other related benefits~~training, $113 ~~decrease~~increase in ~~bad~~dues ~~debts~~and ~~expense,~~subscriptions and $112 ~~decrease~~increase in ~~property~~minor ~~taxes~~equipment purchases.

~~Sales~~Research and ~~marketing~~development expenses ~~decreased~~increased $8520 for the ~~six~~nine month period ended ~~June~~September 30, 2010 as compared to the same period in 2009. The net ~~decrease~~increase for the ~~six~~nine month period ended ~~June~~September 30, 2010 was primarily the result of $~~202~~37 decrease in compensation and other related benefits, $5034 decrease in ~~professional~~R&D ~~fees~~expenses, offset by a $3612 increase in ~~bad~~professional ~~debts expense~~fees, $7315 increase in ~~rent expenses due to change in department charges~~rents, $107 increase in ~~legal~~purchased ~~incurred~~equipment ~~from~~less ~~the~~than ~~UK company,~~ $~~17 increase in outside consulting services~~1.5, $315 increase in ~~office~~travel ~~supplies~~and ~~expense~~M&E, $2125 increase in ~~online~~outside ~~communications~~consulting ~~expense~~fee, $57 increase in ~~education~~equipment ~~and~~R&M ~~training,~~ and a $210 increase in ~~other~~software ~~combined~~licenses ~~expenses~~and support.

~~Research~~Depreciation and ~~development~~amortization ~~expenses~~expense increased $~~100~~28 for the ~~six~~nine month period ended ~~June~~September 30, 2010 as compared to the same period in 2009. The ~~net~~ increase for the ~~six~~nine ~~month~~months ~~period~~ ended ~~June~~September 30, 2010 was primarily the result of ~~$30~~the increase in ~~compensation~~building ~~and~~improvements ~~other~~getting ~~related~~the ~~benefits,~~new ~~$27~~facility ~~increase~~ready infor ~~professional~~operations ~~fees,~~and ~~$14~~assets ~~increase in rents, $5 increase in~~ purchased ~~software,~~during ~~$28~~the ~~increase~~latter inpart ~~outside~~of ~~consulting~~2009 ~~fee, $27 increase in travel M&E, $7 increase in equipment R&M,~~ offset by ~~$18~~fully ~~decrease~~depreciated inassets ~~minor~~during ~~equipment purchases, $17 decrease in software licenses and support expense, and $3 decrease in other combined expenses~~2010.

Depreciation and amortization expense increased $9 for the six month period ended June 30, 2010 as compared to the same period in 2009. The increase for the six months ended June 30, 2010 was primarily the result of the increase in building improvements getting the new facility ready for operations offset by fully depreciated assets during 2010.

Other Income (Expense)

Other expense was $~~2,095~~269 for the three month period ended ~~June~~September 30, 2010 as compared to $~~374~~353 of other expense for the same period in 2009 mainly due to a ~~$1,043~~decrease ~~commitment~~in ofinterest ~~prior~~expense ~~year~~based ~~wages~~on ~~and~~the aline ~~$784~~of ~~commitment~~credit toand ~~tentatively~~other ~~settle a claim~~fees.

Other expense was $2,~~328~~597 for the ~~six~~nine month period ended ~~June~~September 30, 2010 as compared to $~~752~~1,105 of other expense for the same period in 2009 primarily due to a $1,043 commitment of prior year wages and a $784 commitment to ~~tentatively~~ settle a claim, and a $~~252~~281 decrease in interest expense related to less borrowings on the line of credit compared to 2009.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities for the ~~six~~nine months ended ~~June~~September 30, 2010 was $1452,~~657,~~ primarily the result of a decrease in net assets of $1802,~~566,~~ an increase of $2,~~328~~666 in liabilities along with net loss and net non-cash income of $23,~~237~~016. The decrease in net assets of $~~1,566~~802 was primarily due to a decrease in accounts receivables, ~~inventory,~~ and ~~other~~inventory ~~assets~~ offset with anincreases ~~increase~~ in other assets and prepaid expenses. The increase in liabilities of $2,~~328~~666 was primarily due to an increase in accounts payable, accrued expenses and deferred revenues. Net loss and non-cash income of $23,~~237~~016 was primarily the result of the $23,~~549~~426 net loss.

Net cash flows used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2010 was $~~142~~147, primarily from acquisitions of property and equipment.

Net cash flows used in financing activities for the ~~six~~nine months ended ~~June~~September 30, 2010 was $1570,~~223,~~ primarily the result of repayments on the Company’s ~~line~~current ~~of credit and long-term~~ debt.

As of ~~June~~September 30, 2010 the Company has cash and cash equivalents of $~~629~~68 as compared to $339 as of December 31, 2009. Working capital deficiency was $5,~~435~~602 and $962 as of ~~June~~September 30, 2010 and December 31, 2009, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have no material changes to the disclosure under the caption “Quantitative and Qualitative Disclosures About Market Risks” in our Annual Report on Form 10-K for the year ended December 31, 2009, and incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, under the direction of its Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon the evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~June~~September 30, 2010, in timely altering them to material information required to be included in the Company’s periodic SEC filings.

During the quarter ended ~~June~~September 30, 2010, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As of ~~June~~September 30, 2010, the Company has not paid three of the required quarterly dividend payments on our Preferred Series B stock totaling $~~221,734~~196 including 10% interest.

Under the Certificate of Designations for the Preferred Series B stock, if the Company is in arrears and has not paid four quarterly dividend payments on our Preferred Series B stock (whether or not consecutive) or any part thereof, including interest, then the holder of the Preferred Series B stock has the right to demand that the number of Directors be increased to a number that allows the holders of our Preferred Series B stock to elect a majority of our Board of Directors. Since 2003, there has never been more than three accrued but unpaid quarterly dividends on the Series B Preferred stock and it is unlikely that there will be more than three accrued but unpaid quarterly dividends.

ITEM 6(a). EXHIBITS

10		Amendment Number Eight to Credit Agreement by and among Wells Fargo Foothill, Inc. and Teltronics, Inc. dated August 13, 2010.
10.1		Lease Agreement dated September 10, 2010 between 1979 Marcus Avenue Associates, LLC “Landlord” and Teltronics, Inc. “Tenant” for property located at 1979 Marcus Avenue, Lake Success, New York.
10.2		Amendment Number Nine to Credit Agreement by and among Wells Fargo Capital Finance, Inc. formerly known as Wells Fargo Foothill, Inc. and Teltronics, Inc. dated November 15, 2010.
31.1		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

ITEM 6(b). REPORTS ON FORM 8-K

~~The~~One ~~Company~~Report ~~did not file any Reports~~ on Form 8-K was filed by the Company during the quarter ended ~~June~~September 30, 2010.

Date Filed	Item Reported On

August 17, 2010	Item 2.02: Results of Operations and Financial Condition
	Item 9.01: Financial Statements and Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TELTRONICS, INC.
Dated: August 16, 2010	By:	/s/ Ewen R. Cameron Ewen R. Cameron President & Chief Executive Officer
Dated: November 15, 2010	By:	/s/ Ewen R. Cameron Ewen R. Cameron President & Chief Executive Officer
Dated: August 16, 2010	By:	/s/ Angela L. Marvin
Dated: November 15, 2010	By:	/s/ Angela L. Marvin
		Angela L. Marvin Vice President Finance and Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description
10*	Amendment Number Eight to Credit Agreement by and among Wells Fargo Foothill, Inc. and Teltronics, Inc. dated August 13, 2010.
10.1*	Lease Agreement dated September 10, 2010 between 1979 Marcus Avenue Associates, LLC “Landlord” and Teltronics, Inc. “Tenant” for property located at 1979 Marcus Avenue, Lake Success, New York.
10.2*	Amendment Number Nine to Credit Agreement by and among Wells Fargo Capital Finance, Inc. formerly known as Wells Fargo Foothill, Inc. and Teltronics, Inc. dated November 15, 2010.
31.1*	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*	Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
_______
(*)	Filed as an Exhibit to this Report on Form 10-Q for the period ended ~~June~~September 30, 2010.

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